Azerbaijan's state-owned Socar has booked a Suezmax to load vacuum gasoil (VGO) for use as floating storage in the Mediterranean, according to traders.
The company initially booked the Silverway last month to load 130,000t of crude from the Ceyhan terminal in Turkey on 20-25 May, according to oil analytics firm Vortexa. But the tanker appears to have been repurposed. Socar may already have purchased as many as three 30,000t Black Sea VGO cargoes to load onto the vessel, traders said.
Mediterranean VGO imports mostly come from Russian Black Sea terminals, where supplies have been plentiful this year. Black Sea VGO exports rose to just over 2.1mn t in January-March, up by 25pc on the year.
High-sulphur VGO is typically converted into diesel in hydrocracking units, although the process also produces a certain yield of jet fuel and naphtha. Meanwhile, low-sulphur VGO is processed in fluid catalytic cracking (FCC) units to boost a refinery's gasoline yield.
But interest in buying VGO as an intermediate refining feedstock has waned in the Mediterranean amid a sharp fall in demand for diesel, jet fuel and gasoline. Lockdowns imposed to control the spread of Covid-19 have severely restricted peoples' movement. And the containment measures have been particularly stringent in the Mediterranean, where outbreaks have been among the worst in the world.
This drop in demand, combined with a steep contango structure in crude futures — where prompt prices are lower than those for later delivery — have resulted in a substantial increase in oil product storage in Europe in recent weeks. Mediterranean storage could be full by mid-May, while storage utilisation rates across the whole of Europe are at around 70pc, according to operators. Dwindling spare storage capacity on land has resulted in high demand to use vessels for floating storage. Turkey's Tupras booked an Aframax tanker to store diesel and jet fuel in late April.
But the contango structure that has incentivised floating storage is softening. The Ice Brent front-month July futures contract was just 88¢/bl lower than the August contract at settlement yesterday. Back on 14 April, the front-month June contract reached a discount of nearly $4/bl to the July contract.
